Hydroelectric power company NHPC has raised Rs58 billion ($1.25 billion) ahead of its forthcoming listing on Indian exchanges, according to a source close to the deal. The state-owned company will use the money to partly finance the construction of new power plants.
The 1.6 billion shares on offer were priced at Rs36 each, the top of an indicative range that started at Rs30, said the source. The offering represents 13.6% of the outstanding post issue shares, with the rest remaining in the hands of the government.
The top-end pricing was possible due to the strong demand for all the available tranches. The tranche allocated for qualified institutional buyers (QIB) was 29.1 times covered, while the portion reserved for non-institutional investors -- such as corporates and high-net-worth individuals -- was 56 times covered. The shares for retail investors were 3.8 times covered. The only part of the deal that was not fully covered was the employee share tranche, which was only 0.56 times covered. Overall, the deal was 23.61 times covered.
This is the second Indian initial public offering of size so far this year, and in terms of demand, it trumps the other power company, Adani Power, which priced its IPO just two weeks ago. The $625 million Adani Power deal closed 21.6 times covered.
The two IPOs show that the desire to accumulate new paper in India has not diminished after a number of months jam-packed with qualified institutional placements. This is despite the fact that issuers were not confident about investor appetite for equity in the aftermath of the financial crisis.
That NHPC raised more capital than Adani Power should be no surprise. Although the company focuses on hydroelectric power, it is the second largest power producer in India with an installed capacity of 5,175MW from 16 projects. It is second only to NTPC, which has 30,000MW of generating capacity. It is also government-owned, which means it has access to better projects and sources of funding.
NHPC is expecting to install a further 4,622MW of capacity and the proceeds raised will partly finance seven power plants that will contribute 3,240MW towards this goal. The largest of these plants is Subansiri Lower, a 2,000MW facility that is expected to be completed in December 2012.
Some analysts have pointed out that this project has faced long delays over the possible effects it might have on the environment. An engineering mandate was awarded in 2003, but environmental clearance was not granted for another five years. With that issue out of the way, another one has surfaced in the form of a land dispute between the states of Assam and Arunachal Pradesh.
On the syndicate for NHPC were Kotak Securities and SBICAP Securities. The lead managers were Enam Securities, Kotak Mahindra Capital and SBI Capital Markets.
The success of the NHPC and Adani Power deals should help pave the way for other large IPOs in both India and the rest of Asia. In India, more power companies are expected to list to raise money for projects given the country's large power deficit, which will then be followed by property developers. This is possible not only because of the strong rally in the markets since March, but also due to the prevailing bullish sentiment.
One Indian analyst at a domestic brokerage firm described the renewed interest as follows: "Foreign institutional investors (FIIs) are so enthusiastic about India and China that they don't want to hear any bad news. Some FII clients told me recently that after their fortnight's holiday at the beginning of August they hope to come back and see their portfolio gain by 10% to 15%."
And Morgan Stanley believes that the situation is still positive for Indian share prices, according to a report released on Thursday. The report said that fundamentals support the current prices and that liquidity is still favourable. There are also events that could haul share prices higher: "Apart from liquidity, the key market mover in the coming days could be reforms and infrastructure spending. The new tax code looks promising to us and suggests that the government may step on the gas in terms of reforms. To that extent, we see the risk on the market as to the upside."
